How the heck does Google manage to stay in business?

Two interesting articles on Google lately. First, from Brad DeLong, an article responding to recent bouts of insider selling at Google. He cites a WSJ article indicating that many insiders at Google are selling their shares. Could they know something we don’t? Should we all be selling too? Brad points out the obvious — that anyone possessing millions of dollars in highly valued Google stock and precious little of everything else would be insane not to diversify, but of course there’s still the question of “why now?”

I have a friend who started working at Microsoft in 1988. He was a paper millionaire by the mid-90s — kinda like a Google employee today. He told me that everyone in the company at that time just expected Microsoft to keep going up. They saw no reason to sell. And it seemed quite rational at the time — forget about Microsoft, except for a brief blip in 1987, practically no stock had gone down since 1980. Of course, by 2000, some of them were wishing that they had at least sold some of that stock, but even now, I’d say most Microsoft employees are doing just fine.

Google employees are in a different situation — Google was built up during the stock bubble. Most of its current employees were probably hired after the bubble burst. With massive financial ruin that close in their sights, why wouldn’t they be a little skittish? Interestingly, Google’s prospects remain so good that perhaps they, like the Microsoft employees of the mid ’90s, are making the wrong decision, too.

Meanwhile, the ever-entertaining David Pogue has an article about Google’s latest tool, Google Talk, which, like many Google products, seems almost too good to be true.

In today’s culture of cynicism, such generosity and software excellence seems highly suspicious; surely it’s all a smokescreen for a darker, larger plot to suck us all in. What, exactly, is Google up to?

Google Talk indeed sounds like a good program (albeit one I can’t use on my Mac), and its ideal of breaking down the barriers between previously incompatible chat programs is a good one, but it isn’t too hard to figure out exactly what Google is doing here. They’re doing the same thing they’ve always done: build popularity first, then figure out a way to make money. Software is so cheap to distribute, there’s really no reason not to give it away, especially when, to be useful, your software requires a lot of people to use it. Google Talk wouldn’t be much use at all if your friends didn’t have it too, so why not just give it away, for starters?

Obviously in the long run, they’re going to need to make money off it, but there are so many ways they could do this, the mind boggles. They could sell ads, of course, or a premium version of the software, or subscriptions with more services, or, I don’t know, a compatible cell phone. It really doesn’t matter.

Google’s business plan is simple, if a bit counterintuitive: Make great products that everyone wants, give them away, and then, when they become an indispensable part of life, figure out nonintrusive ways to make money off them. Heck, maybe I should buy some of their stock or something.